Posted on 10 Feb 2022
China's market for iron ore derivatives slumped on February 9 after China's central government complained again about the surge in prices. Beijing's warning caused the most-traded May 2022 iron ore contract on the Dalian Commodity Exchange (DCE) to drop by Yuan 49/dmt ($7.7/dmt) or 5.9% from Tuesday's settlement price to close the daytime session at Yuan 781/dmt.
"Iron ore prices have recovered substantially from previous lows," an analyst with an iron ore trading company commented. "Also, the rally before the Chinese New Year holiday was even sharper, suggesting that some correction risks are present - which drew the attention of related government bodies."
On January 28, the last trading day before CNY, the DCE's May 2022 iron ore contract had surged by Yuan 58.5/dmt or 7.6% from previous day's settlement price to close the daytime session at Yuan 829/dmt, Mysteel Global notes. Also, market optimism remained after the week-long holiday, with the contract climbing on Tuesday to as high as Yuan 841/dmt, DCE data shows.
According to a statement posted by the National Development and Reform Commission (NDRC) on its Wechat platform on Wednesday, NDRC and the State Administration for Market Regulation had recently held discussions with related iron ore price information providers, reminding them to ensure the accuracy of their releases assessing iron ore prices, and warning them not fabricate or publish any false price information that might contribute to driving up prices.
The two government bodies also said that they would study and take effective measures to ensure market stability, as well as strengthening market supervision and vowing to strictly crack down on any "irregular and illegal" operations.
Prior to this, NDRC had issued a warning on January 28, saying that the rapidly climbing iron ore prices involved speculation. This was because prevailing supply and demand conditions for iron ore remain largely stable, it said, with domestic inventories standing at multi-year highs.
"For the time being, market participants - especially speculators - are more sensitive to the NDRC's posts, because last year, its warnings did drag iron ore and coal prices down remarkably," the analyst recalled. "I'm sure that is what also led partially to today's price slump."
He also noted that trading of iron ore in the spot market over the past two days was yet to recover to the previous normal level, with buying from steelmakers still weak. In particular, many mills in North and East China are observing stricter production curbs to ensure clear skies during the Winter Olympic Games period (February 4-20), he noted, and that staff at many iron ore trading companies are also yet to return from their holiday.
According to Mysteel's latest survey, the inventories of imported iron ore at China's 45 major ports had grown during CNY to reach 157.3 million tonnes as of February 7, higher by 4.16 million tonnes or 2.7% from the volume as of January 27. The volume marked the highest since early June 2018.
On Wednesday, the futures prices of other Chinese ferrous-related commodities also eased. For example, the most-traded May 2022 rebar contract on the Shanghai Futures Exchange dipped by Yuan 62/tonne or 1.3% from Tuesday's settlement price to close the daytime session at Yuan 4,843/t.
On the same day, the DCE's most-traded May 2022 coke contract on also declined by Yuan 46.5/t or 1.5% from Tuesday's settlement price to close the daytime session at Yuan 3,026/t.
Source:Mysteel Global
